Exploring and keeping readers up to date with the growing economic and political ties between China and South America. Including all the good stuff: Commodities, Energy, International Finance, South-South Cooperation, Microfinance and more

Friday, May 8, 2009

[South America Analysis] -- The significance of creating a new regional bank in South America. ** Note the opinions reflected in this article are my own and do not reflect any resource used in writing this analysis.

As high level Economy and Finance ministers from seven South American countries meet in Argentina with the goal of moving forward the creation of the Bank of the South (El Banco Sur), it is imperative to examine the bigger picture. I have synthesized two major points I would like to highlight.

1) South American countries are experimenting with new institutions. If found to be viable and efficient, these institutions can potentially form the building blocks of larger and more complex ones. The end result will be the promotion of legitimate regional integration in South America.

2) The Bank of the South, along with other efforts such as the Andean Development Corporation will provide South American countries first-hand experience in promoting economic development through South-South Cooperation. Development via this avenue takes advantage of the strengths and weaknesses of other developing countries to promote development from within. South-South Cooperation has great potential to create a new channel in which to promote sustainable economic growth and empower developing countries with the tools and means in which to help each other develop, thus cutting their reliance on external aid from wealthy donor countries or multi-lateral organizations such as the IMF (eventually).

The Bank of the South, which has been financed by the South American countries of Argentina, Brazil, Bolivia, Ecuador, Paraguay, Uruguay and Venezuela, will begin operations with an initial capital pool of $10 billion. This figure was agreed upon during the last meeting held in March in Caracas, Venezuela (MercoPress).

When you casually see hundreds of billions of dollars being thrown around in today’s headlines, it is easy to dismiss this $10 billion effort as menial, at best…

The real point however is not to rock the boat, the boat in this context being the International Monetary Fund (IMF) and other multilateral lending institutions. Hugo Chavez may be full of rhetoric that says otherwise, but as much as he would like the Bank of the South to counter the influence of the IMF, he knows at the moment it cannot.

Consider two major lending institutions—the IMF and the Inter-American Development Bank (IDB). Ideas are being floated around to increase IMF capital to $500 billion (see this BBC article). Granted not all this will go to Latin America, but no less this is a substantially larger capital pool than the Bank of the South will have. The IDB, which is a Latin America specific regional lender, has $101 billion of its own of capital.

However, if we look at one other regional lender—the Andean Development Corporation, which includes some of the remaining South American countries which are not participating in the Bank of the South (Peru, Chile and Colombia), has a capital pool of $5 billion. The Bank of the South, with seven founding members and $10 billion in capital to lend is a definite step forward for the region

Consider for a moment, the fact South American countries have not always been as successful as they are now at managing inflation, debt, budgets, political stability, etc. Today in 2009, South American countries have international reserves. Click here to access a great article with some straight forward data that illustrates this phenomenon from Victoria Saddi’s site, Brazil and Economics. In a few years the United States may have to add to their Chinese and Middle Eastern credit lines by opening up new ones with countries in Latin America.

Definitely not a good thing for U.S self-esteem, but that is another story all together. Discussion welcome for those who would like to share their opinions on the subject.

The Bank of the South will not tip the international balance of power in either the worlds of regional and or international lending institutions. It will however help create the foundation for future organizations and institutions which one day will rival the influence of first world institutions like the IMF.

Eighteen Chinese companies are set to test the fund-raising capability of the newly set up Chinese Nasdaq.

The 18 tech-related companies -- all based in Beijing's Zhongguancun technology district, the so-called Chinese Silicon Valley -- have reached required standards to float shares on China's Nasdaq-style second board for stocks in Shenzhen.

The pioneers include Beijing Time Group, Beijing Atom HighTech Co, Beijing Beilu Pharmaceutical Co, Beijing Huahuan Electronics Co, Beijing Modern Agricultural Equipment Co and Beijing Hengye Century Technology Co. They are among 55 firms which are now trading via a special system for non-listed companies, Securities Times, the mouthpiece of Shenzhen stock exchange, reported Wednesday.

All listed companies must meet the requirements of the China Securities Regulatory Commission. I'll save you the time dissecting this article and tell you what it takes to get listed on China's Nasdaq.

- Issuers need to be in the black for the two most recent consecutive years prior to listing

- Combined profits of the two years must be at least 10 million yuan ($1.5 million).

- If they fail to meet the prior requirement, they must have made profits of at least 6 million yuan ($0.7 million) in the most recent year off of a revenue stream of at least 50 million yuan ($7.3 million).

- Companies must show they have had revenue growth of at least 30% in the two most recent years prior to listing.

More statistics on the Nasdaq of China as they are released. Market Cap, etc.

Thursday, May 7, 2009

Back in March I did a small piece on the creation of the Bank of the South, a.k.a, El Banco Sur (click here to see post). Currently working on my own analysis to this development and my general view on this South American effort to create a regional bank.

Economy and Finance ministers from seven South American countries are scheduled to meet Friday in Buenos Aires to advance in the creation of the Bank of the South, a financial institution to fund infrastructure and development projects in the region.

“At the meeting participants will advance in the founding multilateral agreements for the establishment of the Bank of the South“, said the Argentine Central Bank in a short release.

[Venezuela] -- Oil-Services Law to Affect Some Foreign CompaniesNew nationalization legislation now in the hands of Venezuelan lawmakers will impact the operations of some oil-services companies but will leave out rig firms and large well-service firms.

Oil Minister Rafael Ramirez noted Wednesday that firms such as Williams Co. (WMB), a U.S. firm that operates a high-pressure gas compression facility in Venezuela, could be affected by the new law, but noted that oil rig firms and large service firms such as Schlumberger Ltd. (SLB) and Halliburton Co. (HAL) are not included.

The Spanish oil company has a large stake in the development of the Camisea natural gas field in southeastern Peru and plans to begin exporting fuel to Mexico next year.

[Chile] --Codelco Increases Reserves by 20 PercentChile’s state-owned National Copper Corporation, or Codelco, the world’s largest producer of the red metal, increased its proven and probable reserves by 20 percent in 2008, company sources told Efe on Wednesday.[Mexico] --Calderon Deploys Reserves as Swine Flu Depletes Mexico Financial Resources As the sun sets on Ciudad Juarez, the Mexican border city’s citizens flee to the safety of their homes. The vendors who crowd Avenida Juarez to sell tacos and ice cream during the day pack up their carts and disappear. Hawkers who hand out leaflets for a local mall are gone too -- and the mall itself is a ghost town.

Brazil is dominating the Latin America section on Bloomberg this morning with 6/7 articles in the Financial News tab focused on developments pertaining to the Brazilian economy, stock markets or specific companies.

Wednesday, May 6, 2009

For readers out there who never thought their post office could double as a bank... think again.

Japan Post is said to be the largest holder of personal savings accounts in the world, with 224 trillion yen ($2.1 trillion) in household savings assets. The holding account for 25% of total household savings in Japan. Pretty substantial no?

The Philippine Postal Savings Bank (PPSB) has just announced it plans to launch a new microfinance facility for drivers and conductors belonging to transport cooperatives or associations accredited/ registered with the Philippines Office of Transportation Cooperatives.

Reuters' Wei Gu wrote a insightful op-ed in today's news. He proposes a clever analogy in the form of a question:

"Which would you believe when it comes to diagnosing the health of China's economy -- the pulse taking of the herbal doctor or the lab tests of Western medicine?

When it comes to economic forecasts, Chinese planners favor using such economic indicators as shipping indexes like the Baltic Dry Index or more concrete measures of economic activity such as domestic power output / consumption.

Western forecasts on the other side tend to be based on more "mainstream" economic data such as money supply, loan growth and fixed asset investment.

Wei Gu argues such measures may not be as useful as experts in the West believe at measuring a transitioning economy such as China.

Gu elaborates his point by explaining that China is heavily dependent on the rest of the world for energy, therefore if energy output in China is increasing, it has to be buying it from somewhere. Raw output and consumption data offers a means in which to back check the accuracy of the data released from the Chinese government.

Gu writes, "Its beauty is that it is not distorted by inventories, is difficult to manipulate and is available almost real-time. Chinese banks routinely check the utility bills of their clients to make sure that factories are still busy."

Shipping offers another insight into the Chinese economy. Developed economies are generally more focused on service industries rather than manufacturing and exports. This helps to explain why Western economists favor looking at money supply and fixed investments.

However, considering Western economists remain a powerful influence in the global economy, it is important to pay attention to their own observations and forecasts.

This year, as Gu explains, the Baltic Dry Index "offers a less telling read on China's demand for raw materials because the State Reserves Board has embarked on a commodities buying binge. Thus commodity imports might just be sitting in the reserves instead of going to factories.

After China's money supply surged a record 25.5 percent in March as banks ramped up lending, foreign investment banks' knee-jerk response was to upgrade their forecasts for China GDP."

Perhaps this is a sign that an economic recovery -- which has caught the imagination of economists and investors but has yet to convince Chinese leaders -- is on the way, but its actual start might be later than what the market believes."

Latin America and Brazil [http://brazilandeconomics.blogspot.com] is a great site / blog ran by a very intelligent lady by the name of Victoria Saddi, a former senior Latin America economist at RGE monitor.

Here are a few excerpts from her recent piece of China & Brazil. Click on the various links throughout this post to access her site and the full article directly.

Brazil posted a trade surplus of $ 3.71 billion in April, a significant increase when compared to the surplus posted in March.

The main news on the trade front is the fact that China became the leading destiny for Brazilian exports. Besides that, the trade between both countries reached $3.2 billion in April. In contrast, trade between Brazil and the United States reached $2.8 billion in the same period. In the year until April, trade between China and Brazil reached $10.2 billion, compared to $8.9 billion in the same period last year. Clearly, the fact that China is expected to grow 7% in 2009 is explaining the good performance of Brazil´s trade with China.

So, why do we care about China and the fact that it has replaced the US as the leading market for Brazilian exports? The answer is because we believe that Brazil will not present a very severe recession in 2009 (with growth reaching 0.9%) mostly because of the strong ties between both countries. Export relationships are developed though time, it takes a while to open up and conquer markets. Brazilian exports to China have been increasing and improving since 1993.Click here to access this article in its entirety from Victoria Saddi's website

May 5 (Bloomberg) -- Copper fell from the highest price in two weeks on concern that government stress tests may show some of the largest U.S. banks need more capital and that financial losses will continue to curb growth.

The tests may show that about 10 banks need additional capital to weather a deeper recession, people familiar with the matter said. The Federal Reserve is expected to deliver the results of the tests to executives today. Copper surged 12 percent in the previous four sessions on speculation that the global contraction may be bottoming.

May 5 (Bloomberg) -- Gold rose to a one-week high in New York and London as the dollar declined against the currencies of major trading partners. Platinum and silver also climbed.Gold jumped 1.8 percent yesterday as the dollar fell to a four-week low against the euro. Some investors have bought gold betting on “negative data” about U.S. banks in a report from the Federal Reserve scheduled in two days, said Manqoba Madinane at Standard Bank Group Ltd. in Johannesburg. The dollar index has slid 0.9 percent this week.

May 5 (Bloomberg) -- Wheat prices rose as wet, cold weather delayed planting and the emergence of crops in the U.S., the biggest exporter of the grain.

About 23 percent of the spring wheat was planted as of May 3, down from 55 percent at the same time last year and an average of 59 percent from 2004 to 2008, the Department of Agriculture said yesterday in a report. Planting was 3 percent completed in North Dakota, the crop’s biggest producer, down from 54 percent at this time last year, USDA data show.

This is a very clever, interesting method for India to extend its influence and presence in the Africa, especially as it sees China's influence rising rapidly.

Deepshikha Sikarwar of the Economic Times writes:

"Helping set up the stock exchange is part of New Delhi’s Africa initiative aimed at bolstering South-South co-operation. India also wants to counter the growing Chinese influence in the continent."

The NSE may partner up with stock markets in 53 African countries with the goal of enabling local companies in limited markets participate in larger financial markets, giving companies access to previously unavailable capital.

It would also allow African investors to park their capital in more places on their own continent. A good thing to have happen if you hope to spur internal growth by having locals invest in their own economies--the stock market offers a way to do this.

India has already ventured into Africa with similar continent wide plans, recently launching a Pan African e-network project. A joint initiative with members of the African Union to help connect member countries through satellite and fibre-optic cable networks. The project also links African universities with their peers in India.

Monday, May 4, 2009

Brazilian President Luiz Inacio Lula da Silva called Friday for officials to finalize new oil laws giving the country a greater stake in recent oil finds, saying the legislation was urgently needed to guarantee Brazil's future.

Argentina’s cereals and oil seeds exports are forecasted to drop to 13.8 billion US dollars in this 2008/09 crop which means 56% less compared to the 31.9 billion of the 2007/08 crop according to a paper from the Argentine Agrarian Federation, FAA.

Mercopress

"China and India post manufacturing gains"

Surveys of industry executives registered positive results for the first time in months in April, offering evidence the global economy may be through the worst of its sharpest slump in six decades.

FT - Asia Pacific

"China becomes main destination of Brazilian exports ahead of US"

China has become the main purchaser of Brazilian exports during the first quarter of this year displacing United States which held the position undisputed for decades, according to reports in the Sao Paulo press based on the latest statistics.

MercoPress

"China denies anti-Mexican discrimination"

Foreign ministry insists confinement of scores of Mexican nationals over fears of the H1N1 flu are correct procedure, not bigotry.

FT - Americas

"Japan in $100bn aid offer to neighbours"

Japan offered $100bn yesterday in financial help to Asian states hit by the financial crisis in a move aimed at shoring up its regional economic leadership, despite...

BEIJING -- The A/H1N1 flu outbreak is leading to a potential diplomatic row between China and Mexico, as Chinese health authorities round up and quarantine scores of Mexicans -- only one of whom is thus far reported to be sick -- as they fly in on business and holiday trips.

Mexico's foreign minister said Mexican citizens with no signs of infection had been isolated in "unacceptable conditions" in China. Patricia Espinosa told a news conference Saturday that such measures were "discriminatory and ungrounded" and that the government is advising Mexicans to stay away from China.

Gustavo Carrillo, a 36-year-old general manager of a Mexican technology company in China who lives in Beijing with his wife and three sons, was taken off his Continental Airlines plane on Saturday and rushed into quarantine at a Beijing hotel. He had traveled to the U.S. from China on a business trip and hadn't visited Mexico.

Mr. Carrillo said health officials took the temperatures of other passengers after the plane landed, but didn't check his after they saw his Mexican passport. Instead, they led him down the aisle past gawking passengers. "It was embarrassing and humiliating," he said. "It's just pure discrimination."

"We felt like we were in a zoo," said Angel Yamil Silum, a 27-year-old business student, who arrived in Beijing with his girlfriend on Saturday as transit passengers en route to Bangkok for a holiday and ended up at Ditan and then the Guo Men Hotel.